Pakistan’s biggest economic threat? A rising trade deficit with China
Pakistan and China share a close and friendly relation for strategic and economic collaborations. China always came to the rescue for Pakistan in hard times and the recent example of a $1 billion loan to avoid any adverse impact on Pakistan’s economy after the repayment of Saudi loan is a prime example of time-tested friendship between the two countries. Pakistan holds a significant place in China’s most ambitious Belt and Road Initiative. China established the CPEC (China-Pakistan Economic Corridor) in 2013 that includes different infrastructure and energy projects worth more than $60 billion.
But, I would like to point out an alarming situation for Pakistan in its relation with China, and that’s the rising Trade Deficit. Balance of trade is a concept that measures the difference between the monetary value of a country’s exports and imports. If we talk about the data for the last 6 years, in 2013, Pakistan’s total exports to China were $2.6 billion with cotton being the most valuable export. In the same year, Pakistan’s total imports from China stood at $6.2 billion, with electronics being the most valuable import. In 2013, the trade deficit between Pakistan and China was hardly $3.6 billion. Now, the latest data shows an alarming situation, in 2019, Pakistan’s total exports to China dropped to $2 billion. But, the imports from China almost doubled to $12 billion. The trade deficit between Pakistan and China now stands at around $10 billion.
So, what went wrong? In my opinion, Pakistan’s incompetency to negotiate a mutually beneficial deal with China is the biggest hurdle. Policymakers in the country are not promoting local industries. Let’s take an example of electronics equipment, Pakistan imported electronics equipment worth $3.2 billion from China in 2019 alone, that’s around 500 billion PKR. Pakistan’s local electronics industry has been struggling due to high production costs, weak policies, no subsidy, and no internationally recognized platform to showcase their products. As a result, traders find it easy to just import from China and sell the products in local markets. Just roam around Hafeez center or Hall road in Lahore, it’s hard to find a locally made electronic product with demand.
Pakistan’s sliding export to China is the biggest worry, during the last 6 years when imports from China almost doubled, our exports to China slumped more than 20%. Weak economic policies and visionless trade talks resulted in declining exports. Pakistan’s cotton export to China stood at around $817 million in 2019, as per data provided by tradingeconomics. Textile has always been a strong sector for Pakistan’s economy but it seems like we have not been able to capitalize on that with China. Pakistan must sit down with China to discuss and renegotiate the existing trade deal to encourage exports from Pakistan.
The current tension between the US and China regarding trade deal and China’s tough stance on India can provide Pakistan an opportunity to increase export numbers by negotiating better trade deals with the world’s second-largest economy.
